Thanks for the FreeEdgar site.
My quick impression. It all looks pretty up beat as you would expect. Looks like they could get some boost to earnings if the software deal pays out. Would also be nice if the medical division paid off a little bit. Litchfield margins weren't as good as Precision Products. One could hope they can bring some skills in to fix that. They also seem to feel that drive volume increases will continue to increase revenues. I hope so, but find this naturally the most difficult to predict.
In the end, if they can bring down expenses of other divisions and maintain a level of sales in Precision Products, it would seem very doable to get 20% increase in earnings. Then, if the HIF products are a success, and they get any new business we'll see a very good return.
Sure doesn't look like they're in any trouble. Wish I had some of that cash
Regards, Mark
I copied a section of the 10K as follows;
INNOVEX INC 10-K405
Filing Date: 12/22/97
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS SUMMARY
The Company reported net income of $35,094,000, or $2.31 primary and $2.30 fully
diluted net income per share for the fiscal year ended September 30, 1997. This
compares to net income of $13,121,000, primary net income per share of $0.91 and
fully diluted net income per share of $0.90 in fiscal 1996 and $10,029,000, or
$0.70 primary and $0.69 fully diluted net income per share in 1995. Fiscal 1997
results, as compared to 1996 and 1995, benefited from an increase in net sales
due to strong demand for disk drive lead wire assemblies and an increasing
portion of high end magneto resistive (MR) lead wire assemblies being included
in the product mix. The MR lead wire assemblies have a higher value added
content and sell for a higher unit price than the low end inductive assemblies.
Also contributing was a full year of sales related to the May 16, 1996
Litchfield Precision Components (LPC) acquisition. Fiscal 1996 as compared to
1995 also benefited from an increased demand for lead wire assemblies and from
better than expected operating results from LPC. Gross margins during most of
fiscal 1997 benefited from the rapid increase in demand for lead wire
assemblies. The fiscal 1996 increased sales volume as compared to 1995 more than
offset the reduction of the gross margin percent for the same period. The fiscal
1996 gross margins were affected by volume related selling price reductions and
initial costs related to the production ramp up of the Precision Products
Division wire alignment tab (WAT) product. Gross margin percentages for both
1997 and 1996 were also affected by the inclusion of sales from the newly
acquired Litchfield Precision Components, which currently generate a lower gross
margin than the Company's overall gross margin.
The increase in sales for fiscal 1997 and 1996 also more than offset increased
operating expenses for these years as operating expenses were 9% of sales in
fiscal 1997 as compared to 12% and 14% of sales in fiscal years 1996 and 1995.
Revenue generated by the Iconovex and InnoMedica
Divisions continue to make up less than 5% of the Company's total revenue.
Operating losses related to InnoMedica were more than 50% less than they were in
fiscal 1996 and 1995. Fiscal 1997 operating losses related to Iconovex were $2.1
million, relatively unchanged from fiscal 1996. The Company expects a
significant improvement in Iconovex's performance during fiscal 1998 due to a
joint venture agreement signed in October 1997 with a new marketing partner,
Solutions Corporation of America.
RESULTS OF OPERATIONS
NET SALES. Net sales for fiscal 1997 were $142,004,000, an increase of 104% from
$69,570,000 in 1996 and up substantially from sales of $50,194,000 in 1995.
Sales growth in 1997 was generated primarily by increased shipments of lead wire
assemblies for the disk drive industry as has been the trend for the past seven
years. The rapidly increasing shipments of lead wire assemblies for MR disk
drives also contributed to the increased sales revenue. Disk drive industry
projections indicate that disk drive demand will increase from 20 to 25 percent
during 1998 and the Company expects to post record fiscal 1998 sales based on
these projections. During fiscal 1997, the Company benefited from its ability to
manufacture the smaller and more technically precise four wire lead assemblies
required by the new generation MR disk drives and should continue to benefit
from this expertise as the conversion to MR technology continues. Sales growth
in fiscal 1996 over 1995 was also the result of increased shipments of lead wire
assemblies and an increased portion of MR lead wire assemblies in the product
mix.
A significant portion of the sales increases in fiscal 1997 and 1996 is also due
to sales of high end flexible circuits and chemically etched parts generated by
Litchfield Precision Components. These products were sold primarily to the
medical, computer and communication industries. Fiscal 1998 should benefit from
continued growth in the demand for high end flexible circuits including rapidly
increasing shipments of the Company's new Head Interconnect Flex (HIF) product.
The HIF product was developed to meet the high end head interconnect needs of
the disk drive industry. The HIF product provides a technologically advanced
solution for the Company's customers which is significantly more cost effective
than any competing new technologies. The Company expects that an increasing
portion of the world wide growth in demand for disk drive head interconnects
will be met by products such as the HIF. Sales from Iconovex and InnoMedica made
up less than 2% of the Company's total revenue in fiscal 1997. These sales are
expected to grow in fiscal 1998 as their products and markets continue to
develop.
Export sales accounted for 86% of the Company's revenue in fiscal 1997 as
compared to 74% for 1996 and 79% for 1995, reflecting the high level of lead
wire assembly shipments to disk drive manufacturers in Japan and other pacific
rim countries. A significant portion of the remaining domestic sales are
subsequently shipped internationally by the Company's customers.
GROSS MARGIN. The Company's gross profit margin increased to 42.9% of sales in
fiscal 1997 as compared to 38.8% in 1996 and was similar to the 43.0% generated
in 1995. The fiscal 1997 gross margin dollars increased 126% over 1996 and 183%
over 1995 due to the increase in sales volume.
Precision Products Division's increase in gross margin percent during fiscal
1997 was a result of the large increase in units shipped for the year and the
limited pricing pressure for portions of the year due to supply shortages. The
fiscal 1996 gross margin percent was affected by volume related selling price
reductions and initial costs related to the production ramp up of the Wire
Alignment Tab (WAT) product. Gross margin percentages in all three years
benefited from volume related efficiencies which resulted in more efficient use
of the Company's investment in equipment and manufacturing automation technology
and the increased utilization of Thailand and China subcontractors for labor
intensive processes. The high sales volume and increased efficiency of the
manufacturing process allowed the Company to maintain strong margins even while
responding to pricing pressures in the market. Although there will be continued
pricing pressure, gross margins are expected to remain strong due to increases
in volume and continued cost reductions resulting from manufacturing
efficiencies and engineering innovation.
While Litchfield Precision Components' sales made a significant contribution to
the Company's gross margins in 1997 and 1996, the Division's gross margin
percent caused a slight reduction in the Company's overall gross margin. In
addition, the InnoMedica and Iconovex divisions reduced the Company's overall
gross margin percent approximately 1% in fiscal 1997 as compared to 1996 and
1995 reductions of 2% and 3%.
OPERATING EXPENSES. Selling, general and administrative expenses decreased to
6.2% of net sales in 1997 as compared to 8.7% in 1996 and 9.4% in 1995. The
decrease in 1997 is primarily due to the increased Precision Product Division
lead wire assembly sales which more than offset the increase in operating
expenses. Total selling, general and administrative expenses for fiscal 1997
increased over 1996 primarily due to a full year of expenses related to
Litchfield Precision Components and the addition of infrastructure required to
handle the higher level of activity within the Precision Products Division and
at the corporate level. The increase in fiscal 1996 expenses over 1995 related
to the addition of Litchfield Precision Components' expenses for a portion of
the year and an increase in corporate expenses.
Engineering expense decreased to 2.5% of net sales in fiscal 1997 from 3.6% in
1996 and 4.9% in 1995. The decreases in 1997 and 1996 are primarily due to the
level of lead wire assembly sales increasing faster than the increase in
spending. The actual spending in fiscal 1997 increased 42% over 1996 after being
virtually unchanged in 1996 as compared to 1995. As in prior years, the spending
at Precision Products continued to relate to efforts to develop new products,
further automate the manufacturing process and develop material alternatives.
Spending at Litchfield Precision Components in 1997 was primarily due to the
development of the new Head Interconnect Flex (HIF) product. Iconovex and
InnoMedica continued to concentrate on new product development. Increases in
fiscal 1998 engineering spending are expected at Precision Products to further
automate its manufacturing processes and explore new product opportunities.
Increased fiscal 1998 spending at Litchfield Precision Components will
concentrate on further HIF and chip packaging technology development and
increases in its high volume production capabilities.
Interest income increased to $1,338,000 in fiscal 1997 from $936,000 and
$789,000 in 1996 and 1995. These increases in the last two years correspond to
the increases in average cash and short-term investments. Interest expense
decreased to $96,000 in 1997, from $113,000 in 1996 and
from $125,000 in 1995. Net other income (expense) included a $500,000 write off
of intangible assets at InnoMedica in 1996. These intangible assets related to
purchased proprietary technology which was not expected to be supported by
revenue from associated products.
INCOME BEFORE PROVISION FOR INCOME TAXES. Income before provision for income
taxes was $49,978,000 for fiscal 1997 as compared to $18,742,000 for 1996 and
$14,818,000 for 1995. As a percent of net sales, income before provision for
income taxes was 35.2% for 1997 as compared to 26.9% and 29.5% for 1996 and
1995. The increase in the 1997 percent over prior years was primarily due to the
Company's improved leverage of its fixed costs as a result of the large increase
in sales. The reduction in the 1996 percent as compared to 1995 is the result of
the lower gross margin percent on the increased level of sales during 1996. The
dollar increase in 1997 over both 1996 and 1995 was due to the large increase in
Precision Product lead wire sales and the inclusion of a full year of Litchfield
Precision Components' operating results. Operating income from all divisions
should improve in fiscal 1998. Precision Products is expected to have increased
revenues due to projected increases in disk drive industry demand particularly
in the rapidly growing MR segment of the market. Litchfield Precision Components
should benefit from increased sales of its HIF and other new products. The
Iconovex joint venture should result in reduced costs and increased revenue and
InnoMedica should show improvements as its markets expand.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased by $16,107,000 to $37,883,000 at
September 30, 1997. Net cash provided by operating activities increased in 1997
to $30,407,000 from $13,108,000 in 1996 and $12,425,000 in 1995. The increase in
the Company's September 30, 1997 cash and short-term investments was primarily
due to cash flow from operations more than offsetting increased capital
expenditures for a new facility at Litchfield Precision Components and equipment
for the Precision Products Division. The increase in fiscal 1997 cash provided
by operating activities over 1996 and 1995 was primarily due to improved
operating results related to the increase in demand for lead wire assemblies.
Accounts receivable at September 30, 1997 increased by $10,018,000 from the
prior year due to the increased level of sales in 1997 as compared to 1996.
Working capital rose by $28,301,000 to $61,843,000 at September 30, 1997. The
Company's current ratio was 7.5 to 1 at fiscal 1997 year-end, compared to 5.0 to
1 at the end of fiscal 1996.
Net property, plant and equipment increased by $11,017,000 to $23,749,000 at
September 30, 1997 primarily due to the capital expenditures at Precision
Products to meet the increased level of lead wire assembly demand and the
construction of a high volume production facility at Litchfield Precision
Components to meet the expected future demand for new high volume applications
including the HIF and chip packaging products. The Company has commitments
totaling approximately $7 million at September 30, 1997 relating to this new
production facility. Intangible assets decreased $459,000 to $1,849,000 at
September 30, 1997.
Long-term debt, net of current maturities, decreased by $113,000 to $951,000 at
September 30, 1997. The ratio of long-term debt to stockholders' equity was .01
at September 30, 1997, compared to .02 at the end of fiscal 1996.
Management believes that existing cash and investments and cash generated from
operations will provide adequate sources of funds to support projected working
capital, capital expenditures and dividends in fiscal 1998.
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the letter to shareholders, elsewhere in
the Annual Report and in the Company's Form 10-K and in future filings by the
Company with the SEC, except for the historical information contained herein and
therein, are "forward-looking statements" that involve risks and uncertainties,
including the timely availability and acceptance of new products, the impact of
competitive products and pricing and a general downturn in the Company's
principal market. The Company disclaims any obligation subsequently to revise
any forward-looking statements to reflect subsequent events or circumstances or
the occurrence of unanticipated events. |
